DCIT Corporate Circle 6(2), Chennai V. Shriram Venture Ltd., CHENNAI

ITA 3060/CHNY/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6531 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 12-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: A MUDIT BOHARA
• Keywords: Earning of tax free income; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! '!# $ , & ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER !./ ITA NOS.3059 & 3060/CHNY/2017 * / ASSESSMENT YEARS : 2013-14 & 2014-15 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), CHENNAI - 600 034. V. M/S SHRIRAM VENTURE LTD., NO.4, MUKAMBIKA COMPLEX, LADY DESIKA ROAD, CHENNAI - 600 034. PAN : AACCS 9328 J (,/ APPELLANT) (-.,/ RESPONDENT) !./ ITA NOS.3095 & 3096/CHNY/2017 * / ASSESSMENT YEARS : 2013-14 & 2014-15 M/S SVL LIMITED (FORMERLY KNOWN AS SHRIRAM INDUSTRIAL HOLDINGS LIMITED IN WHICH SHRIRAM VENTURE LIMITED GOT AMALGAMATED), SHRIRAM HOUSE, NO.4, BURKIT ROAD, T. NAGAR, CHENNAI - 600 017. V. THE INCOME TAX OFFICER, CORPORATE WARD 6(3), CHENNAI. (,/ APPELLANT) (-.,/ RESPONDENT) / 0 /REVENUE BY : SHRI R. CLEMENT RAMESH KUMAR, ADDL .CIT 12 / 0 /ASSESSEE BY : SHRI A. MUDIT BOHARA, ADVOCATE 3 / 2& / DATE OF HEARING : 01.08.2019 45* / 2& / DATE OF PRONOUNCEMENT : 31.10.2019 2 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THE REVENUE AND THE ASSESSEE ARE IN CROSS APPEALS AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS)-15, CHENNAI [CIT(A) IN SHORT], DATED 28 .09.2017 FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, NAMELY, SHRIRAM VENTURE LTD., FORMERLY KNOWN AS SHRIRAM IND USTRIAL HOLDINGS LTD., IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF INVESTMENTS. THE RET URN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 WAS FILED ON 30 TH NOVEMBER, 2013 DECLARING LOSS OF 6,44,20,867/-. THE RETURN OF INCOME WAS REVISED ON 27 TH MARCH, 2015 DECLARING TOTAL INCOME OF 2,09,910/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPL ETED BY THE ASSESSING OFFICER (A.O. IN SHORT) VIDE ORDER DATE D 31 ST DECEMBER, 2016 PASSED UNDER SECTION 143(3) READ WITH SECTION 92CA(4) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AT TOTAL INCOME OF 11,20,24,769/-. WHILE DOING SO, THE A.O. MADE DISA LLOWANCE OF 8,08,98,963/- UNDER THE PROVISIONS OF SECTION 14A O F THE ACT AND ADDITION OF 3,09,15,892/- WHILE COMPUTING THE INCOME UNDER LONG TERM CAPITAL GAINS. 3 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 3. BEING AGGRIEVED BY THE ABOVE ADDITIONS, AN APPEA L WAS PREFERRED BEFORE THE CIT(A) WHO, VIDE IMPUGNED ORDE R, DIRECTED THE A.O. TO RECOMPUTE THE AMOUNT OF DISALLOWANCE MADE U NDER SECTION 14A READ WITH RULE 8D OF INCOME-TAX RULES, 1962 ON THE FOLLOWING LINES:- (A) AFTER EXCLUDING THE INVESTMENT IN FOREIGN ENTITIES (B) AFTER EXCLUDING INVEST MENT IN SUBSIDIARY COMPANIES (C) AFTER EXCLUDING INVESTMENT IN SHARES AND MUTUAL FUNDS FROM WHICH DIVIDEND INCOME IS NOT EARNED. THE CIT(A) FURTHER HELD THAT THE AMOUNT OF DISALLOW ANCE SHOULD NOT EXCEED THE EXEMPT INCOME. THUS, THE CIT(A) PARTLY GRANTED RELIEF IN RESPECT OF THE ADDITION MADE UNDER SECTION 14A OF T HE ACT. THE CIT(A) HAS ALSO DIRECTED THE A.O. TO DELETE THE AMO UNT OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT FROM BOOK PROFITS FOR THE PURPOSE OF COMPUTING TAX LIABILITY UNDER SE CTION 115JB OF THE ACT FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF ACIT V. VIREET INVESTMENTS PVT. LTD. (82 TAXMANN.CO M 415). THE ASSESSEE HAD NOT CONTESTED THE ADDITION MADE UNDER THE HEAD CAPITAL GAIN. 4. BEING AGGRIEVED BY THAT PART OF THE ORDER OF THE CIT(A), WHICH IS AGAINST THE ASSESSEE-COMPANY, THE ASSESSEE-COMPA NY IS IN APPEAL BEFORE US IN I.T.A. NOS.3095 & 3096/CHNY/201 7 AND BEING 4 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 AGGRIEVED BY THAT PART OF THE ORDER OF THE CIT(A), WHICH IS AGAINST THE REVENUE, THE REVENUE IS IN APPEAL BEFORE US IN I.T.A. NOS.3059 & 3060/CHNY/2017 FOR ASSESSMENT YEARS 2013-14 AND 2 014-15 RESPECTIVELY. 5. LETS TAKE UP THE REVENUES APPEALS FIRST. THE REVENUE HAS RAISED SIMILAR GROUNDS FOR BOTH THE ASSESSMENT YEAR S WHICH ARE AS FOLLOWS:- 1.THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEA LS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD CIT(A) ERRED IN DIRECTING THE AO TO RESTRI CT THE DISALLOWANCE U/S 14A UNDER RULE 8D ON THE FOLLOWING L INES. A)AFTER EXCLUDING THE INVESTMENTS IN FOREIGN ENTIT IES. B)AFTER EXCLUDING INVESTMENTS IN SUBSIDIARY COMPANIES. C)AFTER EXCLUDING INVESTMENT IN SHARES AND MUTUAL FUNDS FROM WHICH DIVIDEND INCOME IS NOT EARNED. 2.1) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT AS PE R SECTION 251(1)(A) OF THE ACT, THE POWER TO SET ASIDE OR EXAMINING THE ISSUE AFRESH HAS BEEN OMITTED WITH E FFECT FROM 01.06.2001 AS PER FINANCE ACT 2001. 2.2) THE LD CIT(A) ERRED IN DIRECTING THE AO TO RESTR ICT THE ADDITION ON ACCOUNT OF U/S 14A AMOUNT EVENTHOUG H, IN ASSESSEE GROUP CASE DEPARTMENT APPEALS ARE PENDING BEFORE HIGH COURT. 2.3) THE LD CIT(A) FAILED TO APPRECIATE THAT THE ASSE SSEE ITSELF MADE DISALLOWANCE U/S 14A WHICH CONFIRMS THAT EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPT IN COME. 5 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 2.3) THE LD CIT(A) ERRED IN DIRECTING THE AD TO DELET E THE ADDITION U/S 14A, HOLDING THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR WHEN RULE 8D DOES NOT M AKE ANY DISTINCTION AND THE INTENTION OF THE ASSESSEE I N MAKING SUCH INVESTMENT IS RELEVANT TO DECIDE THE ISSUE AS HELD BY THE APEX COURT IN RAJENDRA PRASAD MOODY (115 ITR 519) A ND NOT THE ACTUAL EARNING OF INTEREST IN A PARTICULAR YEAR. 2.4) THE LD CIT(A) ERRED IN NOT FOLLOWING THE BINDING DECISION OF ITAT CHENNAI BENCH IN SIVA INDUSTRIES & HOLDINGS LTD VS ACIT (ITA 1039/MDS/2014.2108/MDS/2012, 687 & 884/MDS/2014 DATED 07/10/2016) 2.5 THE LD CIT(A) ERRED IN DELETING THE ADDITION MADE TO BOOK PROFITS COMPUTED U/S 115JB BEING EXPENDITURE INCURRED TO EARN EXEMPT INCOME EVEN THOUGH CL.(F) EXPLANATION 1 TO SE 115JB SPECIFICALLY PROVIDES FOR IT . 3.) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER RESTORED. 6. THE REVENUE CHALLENGES THE CORRECTNESS OF FINDIN G OF THE CIT(A) SETTING ASIDE THE MATTER TO THE A.O. AND DIR ECTING THE A.O. TO CONSIDER THE DISALLOWANCES AFTER EXCLUDING THE INVE STMENTS IN FOREIGN ENTITIES AND EXCLUDE INVESTMENT SUBSIDIARY COMPANIES AND INVESTMENTS WHICH HAD NOT EARNED THE EXEMPT INCOME AND ALSO THE FINDING OF THE CIT(A) THAT THE AMOUNT OF DISALLOWAN CE UNDER SECTION 14A OF THE ACT SHOULD NOT BE ADDED BACK TO THE BOOK PROFITS FOR THE PURPOSE OF COMPUTING THE TAXABLE LIABILITY UNDER SE CTION 115JB OF THE ACT. 6 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 7. WE FIND THAT THE FINDING OF THE CIT(A) IS CORREC T TO THE EXTENT OF DIRECTING THE A.O. TO EXCLUDE THE INVESTMENTS IN FOREIGN ENTITIES AND INVESTMENT IN SHARES AND MUTUAL FUNDS WHICH HAD NOT EARNED EXEMPT INCOME AND RESTRICTING THE AMOUNT OF DISALLO WANCE UNDER SECTION 14A OF THE ACT TO THE EXTENT OF EXEMPT INCO ME. THE DECISION OF THE CIT(A) IS BASED ON THE RATIO OF THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 392 ITR 633. THE SPECIAL BENCH OF ITAT, DELHI IN VIREET INVESTMENTS PVT. LTD. (SUPRA) HELD THAT THE ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME ALONE HAD TO BE CONSIDE RED FOR THE PURPOSE OF COMPUTING THE AMOUNT OF DISALLOWANCE UND ER SECTION 14A OF THE ACT. HOWEVER, THE DIRECTION OF THE CIT( A) TO A.O. TO EXCLUDE THE INVESTMENT IN SUBSIDIARY COMPANIES CANN OT BE UPHELD IN VIEW OF THE LAW LAID DOWN BY HON'BLE SUPREME COURT IN MAXOPP INVESTMENT LTD. V. CIT (2018) 402 ITR 640 WHEREIN I T WAS LAID DOWN THAT THE STRATEGIC INVESTMENTS CANNOT BE EXCLUDED F ROM THE PURVIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT. THERE FORE, THE DIRECTION OF THE CIT(A) STANDS MODIFIED TO THIS EXTENT. 8. AS REGARDS THE GROUND OF APPEAL CHALLENGING THE DIRECTION OF THE CIT(A) THAT THE AMOUNT OF DISALLOWANCE UNDER SE CTION 14A OF THE ACT SHOULD NOT BE ADDED BACK TO THE BOOK PROFIT FOR THE PURPOSE 7 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 OF COMPUTING TAXABLE INCOME UNDER SECTION 115JB OF THE ACT, THE CIT(A) CANNOT BE FAULTED WITH AS HE FOLLOWED THE DE CISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF VIREET INVEST MENTS PVT. LTD. (SUPRA). NO CONTRARY DECISION WAS CITED BEFORE US. HENCE, WE CONFIRM THE DECISION OF THE CIT(A). 9. BOTH THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. THE ASSESSEE HAS RAISED SIMILAR GROUNDS IN BOTH THE APPEALS WHICH READ AS UNDER:- 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW AND F ACTS OF THE CASE. 2. THE CIT(A) ERRED IN CONFIRMING PART OF THE DISALL OWANCE MADE U/S.14A R.W. RULE 8D 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THA T THE APPELLANT IS IN THE BUSINESS OF INVESTMENT PROMOTIO N AND THE INVESTMENTS WERE NOT MADE FOR EARNING DIVIDEND INCO ME BUT ONLY AS STRATEGIC INVESTMENT. THEREFORE, NO DISALLO WANCE U/S.14A.R.W.RULE 8D IS ATTRACTED. 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THA T THE DISALLOWANCE U/S.14A MADE BY THE APPELLANT OF RS.72,77,740/- IS REASONABLE. 5. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THA T BEFORE PROCEEDING TO APPLY RULE 8D, THE ASSESSING OF FICER HAS NOT RECORDED, HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, AS TO WHY HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE AMOUNT DISALLOWED BY THE ASSESSE E 8 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 ULS.14A OF RS. 72,77,740/-. IN THIS CONNECTION THE APPELLAN T RELIES ON THE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS TAIKISHA ENGINEERING INDIA LTD (299 TAXMAN 143) AND CIT VS I P SUPPORT SERVICES INDIA LTD (378 ITR 240). 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED B EFORE OR AT THE TIME OF HEARING, THE HONBLE ITAT MAY BE PLEASED TO DELETE THE DISALLOWANCE MADE U/S.14A R.W. RULE 8D. 11. THE ASSESSEE CONTENDED THAT THE PROVISIONS OF S ECTION 14A OF THE ACT ARE NOT APPLICABLE SINCE THE INVESTMENTS WERE MADE ONLY IN SUBSIDIARY COMPANIES FOR STRATEGIC PURPOSES. TH E CONTENTION OF THE ASSESSEE WAS OVERRULED BY THE HON'BLE SUPREME C OURT IN MAXOPP INVESTMENT LTD. (SUPRA). HENCE, WE CONFIRM THE ORDER OF THE CIT(A). 12. BOTH THE APPEALS OF THE ASSESSEE STAND DISMISSE D. 13. IN THE RESULT, REVENUES APPEALS ARE PARTLY ALL OWED FOR STATISTICAL PURPOSES AND THE ASSESSEES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31 ST OCTOBER, 2019 AT CHENNAI. SD/- SD/- ( ) ('!# $ ) (GEORGE MATHAN) (INTURI RAMA RAO) /JUDICIAL MEMBER & / ACCOUNTANT MEMBER /CHENNAI, 7! /DATED, THE 31 ST OCTOBER, 2019. KRI. 9 I.T.A. NOS.3059 & 3060/CHNY/17 I.T.A. NOS.3095 & 3096/CHNY/17 8 / -29: ;:*2 /COPY TO: 1. 12 /ASSESSEE 2. ASSESSING OFFICER 3. 3 <2 () /CIT(A)-15, CHENNAI-34 4. PRINCIPAL CIT- 6, CHENNAI 5. : => -2 /DR 6. >? @ /GF.